Question

Carver Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store's operations follow:

- Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January.
- Collections are expected to be 90% in the month of sale, 8% in the month following the sale, and 2% uncollectible.
- The cost of goods sold is 75% of sales.
- The company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale. Payment for merchandise is made in the month following the purchase.
- Other monthly expenses to be paid in cash are $24,700.
- Monthly depreciation is $16,000.
- Ignore taxes.

Reference: 9-23

Accounts payable at the end of December would be:

		$231,000
		$96,000
		$135,000
		$240,000

Answer 1

It has been given that the company purchases 60% of its merchandise in the month prior to the month of sale and 40% in the month of sale. Payment for merchandise is made in the month following the purchase.

This means the company account payable at the end of every month for the goods purchased by them for the 40% cost of goods sold for the current month and 60% cost of goods sold for the next month.

Likewise, account payables at the end of December will be on account of 40% of cost of goods sold for the December Sale and 60% of Cost of Goods Sold for the January.

Particulars		December	January
Sales	A	$320,000	$300,000
COGS	B=A*75%	$240,000	$225,000
Account Payable	C=B*40%	$96,000
	C=B*60%		$135,000

All other expenses are paid in cash or they are non cash expenses.

Therefore, total Accounts Payable = $96,000+$135,000 = $231,000.

Therefore option A is the correct option.